Chavez’s Death Could Dim China’s Venezuelan Energy Prospects

March 6 (Bloomberg) -- China, the world’s second-biggest
consumer of crude oil, is likely to delay deciding on new
investments in Venezuela’s energy industry to assess any change
of political direction after President Hugo Chavez’s death.

“The death of Chavez could lead to oil supply
uncertainties from Venezuela and could jeopardize Venezuela’s
oil exports to China in the short term,” Gordon Kwan, a Hong
Kong-based analyst with Mirae Asset Securities Ltd., said today
in an e-mail. His death in the long-term may affect investment
in the industry by China, he said.

State-run China Development Bank Corp. has agreed to lend
Venezuela $46.5 billion since 2008, representing half of the
loans the country received in the period, according to a Jan. 13
report from Massachusetts-based Tufts University. About 95
percent of the debt is backed by sales contracts for crude, the
report shows. Chavez, who transformed Venezuelan politics by
channeling record oil revenue to the poor, died at 58 after a
struggle with cancer, raising the risk of unrest and political
infighting.

Yao Zhongmin, head of China Development Bank’s supervisory
board, said in Beijing today the Venezuelan loans carried risks,
for which the bank has a contingency plan. He didn’t give any
details.

Shipments to China by Petroleos de Venezuela SA, the state
producer known as PDVSA, are up nearly tenfold since 2006 to an
average 518,000 barrels a day and will surpass 1 million barrels
a day before the end of 2015, Venezuela’s Oil Minister Rafael
Ramirez said Sept. 25. The country sells China about 19 percent
of its output, based on Ramirez’s statement.

Top 10

“China’s current investment in the country should be safe,
especially as a large chunk of the investment was in the form of
’loans for oil’,” said Laban Yu, a Hong Kong-based analyst at
Jefferies Group Inc. “What’s uncertain at the moment is whether
a new government will maintain its anti-U.S. stance or shift to
the opposite. A shift of political atmosphere could dim Chinese
companies’ investment perspective in the country very quickly.”

Venezuela, South America’s largest oil exporter, ranked as
China’s seventh-biggest supplier last year, with 15 million
tons, posting the highest expansion among China’s top 10
providers at 33 percent. Chavez led a government that kept many
of the biggest western oil companies out of Venezuela, helping
China secure supplies.

Since Chavez announced he had cancer in June 2011,
investors have speculated that his departure could pave the way
for the opposition to win power and introduce more market-friendly policies. Venezuela’s dollar bonds returned 46 percent
last year, the best of any emerging market after the Ivory
Coast, according to JPMorgan Chase & Co.’s EMBI Global index.

Citic, CNPC

China’s Citic Group, which is constructing residential
homes in Venezuela with total contracts of as much as $3
billion, is assessing the impact of Chavez’s death, Chairman
Chang Zhenming said today.

“Long term, the political uncertainties will discourage
further China oil M&As in Venezuela’s Orinoco Delta, rich in
heavy oils that are highly sought after by Sinopec’s coastal
refineries,” said Mirae Asset Securities’ Kwan. Chinese
companies will wait until at least the end of elections, which
must be held within 30 days of the president’s death, before
assessing investments, he said.

New Head

Venezuelan Vice President Nicolas Maduro, a former bus
driver and union leader, will take over as interim president of
the country while elections are organized, according to Foreign
Minister Elias Jaua.

Russian and Indian companies are withholding planned
investments in Venezuelan oilfields, according to eight oil
company executives and consultants earlier this year, who
declined to be identified because they weren’t authorized to
talk about the matter publicly.

“We’ll have to wait for the new head of state to be named
and look at the statements he makes about the country’s future
directions,” T.K. Ananthkumar, finance director at Oil India
Ltd., said today in a phone interview. Oil India is a partner
with five other companies in a field that’s producing about
1,000 barrels a day of crude in Venezuela. “Hopefully, things
will not turn for the worse,” he said.

Reliance, Gazprom

India’s Reliance Industries Ltd. postponed by a few months
an estimated $2 billion investment decision for four Venezuelan
oilfields beyond a Jan. 31 deadline because it has not received
geological data from PDVSA, a person directly involved in the
deal said this year, asking not to be identified citing
confidentiality terms.

OAO Rosneft agreed to spend $36 billion with PDVSA, which
oversees the world’s largest oil reserves, and fellow Russian
partners on Orinoco projects in the last three years. It also
agreed to lend Venezuela $6 billion together with state-run OAO
Gazprom in 2011. While Russian energy projects will advance as
long as Chavez’s party remains in charge, they won’t be
supported by the opposition, a Gazprom Latin American manager,
who asked not to be named citing company policy, said Jan. 12.

Oil output in the country declined 13 percent to 2.7
billion barrels per day in 2011 from 1999 when Chavez came to
power, according to the BP Statistical Review of World Energy.
PDVSA hasn’t published any operational data beyond 2011.